Types of Trusts

Types of Trusts and Who’s Involved

A trust is not a legal entity, but rather a private legal arrangement where the ownership of assets, such as property, shares or cash, is transferred to others (the trustees) to look after and manage for the benefit of one or more beneficiaries.

Trusts are widely used in estate planning, succession and wealth protection, especially in jurisdictions like the Isle of Man and the UK.

Key Roles in a Trust

• Settlor – the person transferring assets into the trust. In the UK and Isle of Man, this is called a settlor; in the US, often a grantor.
• Trustees – individuals or a trust company who legally own and manage the trust assets.
• Beneficiaries – those who benefit from the trust’s assets or income.
• Protector – sometimes appointed to oversee trustees, with powers such as removing or appointing them (depending on the trust deed).

Trusts are usually governed by a trust deed (the legal document setting the terms) and trustees may also be guided by a non-binding letter of wishes from the settlor, especially in discretionary trusts.

The appeal of a PTC often lies in the sense of control it offers to settlors and their families, particularly in jurisdictions where the concept of a trust is unfamiliar, such as France or Egypt.

Legal vs Beneficial Ownership

A common misconception is that a trust owns its assets. In fact, it does not. Instead:

• Trustees are the legal owners.
• Beneficiaries are the beneficial owners.

This separation of ownership is a defining feature of trusts

Types of Trusts

• Accumulation and Maintenance Trust (A&M)
  • Assets are held for a beneficiary’s education, maintenance or benefit.
  • Income can be accumulated (saved and added to the trust fund).
  • At a set age (e.g. 18 or 21), beneficiaries gain full entitlement to the assets.
• Interest in Possession Trust (IIP)
  • The income beneficiary has an automatic right to trust income (after expenses).
  • They usually cannot access the trust capital, which is reserved for future beneficiaries.
• Discretionary Trust
  • Trustees decide how to distribute income or capital.
  • Provides flexibility, as no beneficiary has an automatic right, trustees exercise discretion based on the trust deed and settlor’s wishes.

Why Use a Trust?

Trusts remain a valuable tool for:

• Wealth protection across generations
• Succession planning
• Managing assets for young or vulnerable beneficiaries
• Tax and estate planning, depending on jurisdiction

By understanding the roles and types of trusts, families and advisers can make informed decisions about the best structure for their circumstances.

Instead, our preference is for a foundation to own the PTC, ideally within the same jurisdiction as the trusts it administers. This approach provides clearer governance, alignment of laws, and reduces the risk of unintended consequences.

For more information or tailored advice on Trusts, please get in touch.